Employee references are the positive or negative comments about an employee's job performance provided to a prospective employer. In most cases, a prospective employer will contact a person's current or former employer to seek references as part of the process of considering that person for a new position. Prospective employers check references during the interview process in order to ensure that a candidate's assertions about his or her job skills and work experience are accurate. In fact, obtaining references is one of the most important parts of the hiring process because it can provide valuable information that sets one candidate apart from others and facilitates a sound hiring decision.

Although seeking references has a number of benefits for the prospective employer, providing references can be a complicated issue for the current or former employer. As Olga Aikin pointed out in People Management, companies that provide references have a duty both to the employee who is the subject of the reference and to the prospective employer who is the recipient of the reference. Giving a negative reference may expose the company to legal liability if the former employee does not get a desired job and decides to sue for defamation or slander. But providing a falsely positive reference or failing to disclose potentially damaging information can leave the company open to legal liability as well.

If a candidate is selected for a position on the basis of a reference and then commits a crime or causes harm to another person while on the job, the new employer might sue the provider of the reference. Several court decisions have held a former employer liable for crimes committed by a former employee in a new job because that employer had provided a positive reference and failed to notify the prospective employer about one or more negative aspects of the former employee's performance. As a result of these dual sources of liability, providing references sometimes leaves small business owners stuck in the middle. "The issue of references is always controversial, involving a balance of employers' fears of legal liability, interests in providing relevant information to prospective employers, and concerns for fairness to former employees," Ellen Harshman and Denise R. Chachere wrote in the Journal of Business Ethics.

AVOIDING LEGAL LIABILITY WHEN PROVIDING REFERENCES

In recent years, many companies have tried to avoid the legal liability involved in providing employee references by enacting policies that strictly limit the information they are willing to supply. When asked for a reference, these companies will not provide any assessment of an employee's job performance. Instead, they will only confirm the person's job title, dates of employment, and salary. "Due to legal ramifications, corporate executives are increasingly wary of being specific about former employees and their work histories," Max Messmer wrote in Business Credit. "Providing references can be a double-edged sword." In fact, Messmer noted that 74 percent of Fortune 1000 companies have a policy limiting employee references to a confirmation of basic employment information. However, half of the executives polled said they were willing to bend the company rules in order to give positive references for their best performers.

According to Robert A. Siegel and Anne E. Garrett in the Los Angeles Business Journal, small business owners have two main options in providing employee references without exposing themselves to legal liability. First, as noted above, they can simply verify the candidate's basic employment information without making any positive or negative assessment of his or her performance or qualifications. This is known as a "no comment" reference. It has become the policy at a wide range of companies, despite the fact that the prospective employer gains very little information upon which to base a hiring decision.

The second option open to small business owners is to provide a "full disclosure" reference. This type of reference often consists of a letter containing all the relevant facts of a person's employment, including an appraisal of their performance and potential. Experts suggest that an employer cannot be held liable for defamation in providing this type of reference as long as it is made without malice and the information is based on credible evidence. In fact, several states have enacted laws protecting employers from civil liability when they provide references that include job performance information. But some employers still choose to play it safe by only providing information based on performance appraisals that were signed by the former employee.

"In making a decision between the two alternatives, employers will have to balance the value of full disclosure to prospective employers against the risks of litigation presented by that choice," Siegel and Garrett wrote. "While full disclosure is viewed by many observers as the most desirable course, and it is clear that many employers will decide to select that alternative in the future, employers should do so with care in order to avoid litigation challenges by unhappy employees."

TIPS FOR EMPLOYERS CHECKING REFERENCES

With so many companies limiting the reference information they are willing to provide about former employees, small business owners often face a challenge in obtaining the information they need to make sound hiring decisions. In his article, Messmer supplied a series of suggestions for small business owners to use in obtaining references for prospective employees. First, he noted that companies should inform all prospective employees that their backgrounds will be checked carefully prior to hiring. It may be helpful to obtain written approval from all candidates to check their references, as well as a signed release allowing former employers to speak freely without fear of legal liability.

Messmer also suggested that the small business owner, or the person doing the hiring, call prospective employees' references themselves, rather than delegating the task to a human resources representative. It may be helpful to learn something about the candidate's former employer in advance in order to establish trust during the call. If the former employer is reluctant to provide much information—perhaps due to a company policy limiting employee references—Messmer suggests that the small business owner try to engage him or her in conversation by asking open-ended questions. If all else fails, Messmer recommends at least reading parts of the candidate's resume to the former employer and asking him or her to confirm the information it contains.

Other suggestions for small business owners include making sure the references you check are legitimate by calling a central switchboard number at the former employer's offices and asking for the person providing the reference, and checking several references for each candidate to be certain you obtain a clear picture of their qualifications. The Internet may offer another source of basic information about some potential employees. However, small business owners should keep in mind that the same anti-discrimination laws apply to checking references that apply to interviewing: you cannot ask about a candidate's age, marital status, race, religion, etc. or use that information in your hiring decisions. In filling sensitive positions, it may be helpful to hire an outside firm to conduct a detailed background check.

Although the process of checking references may be time-consuming, it is a vital part of making good hiring decisions. "In the current low unemployment environment, it can be tempting to skip calling references in favor of making a quick decision," Messmer noted. "However, it is important not to overlook this important step in the employment process, because one poor hiring decision can affect the productivity of an entire department. Reference checking is hard work and not without pitfalls, but with a little extra effort it can be one of the most useful tools in making the right hiring decisions."

BIBLIOGRAPHY

Aikin, Olga. "Watch Your Back, Referee." People Management. 13 April 2000.

Harshman, Ellen, and Denise R. Chachere. "Employee References: Between the Legal Devil and the Ethical Deep Blue Sea." Journal of Business Ethics. 1 January 2000.

Messmer, Max. "The Delicate Art of Reference Checking." Business Credit. May 1999.

Rogerson, Pam. "Insider-Insight: Employee References—Putting pen to paper. The fear of litigation and employment tribunals is putting employers off writing a reference for even valued staff. But it doesn't have to be that way." Accountancy Age. 14 July 2004.

Siegel, Robert A., and Anne E. Garrett. "Giving Employee References: Potential Pitfalls and Protections." Los Angeles Business Journal. 12 January 1998.

Swanson, Sandra. "Rave Reviews." Crain's Chicago Business. 3 October 2005.